Innovative Success

Nielsen's Hale outlines keys for reaching consumers in 2012.

Winners will align formulas, assortment, promotions and communication with shopper demand,” said Todd Hale, senior vice president for consumer and shopper insights for Nielsen, told the retailers and suppliers attending his “Understanding the Convenience Store Shopper” presentation.

“We’ll see more big retailers having to close their doors because they’re no longer relevant and are not innovating,” Hale further predicted of 2012. Such retailers might include the already-struggling Sears or Duane Reade.

So how do c-store owners avoid this fate? According to Hale, the first step is to ask: “Is there a way to make the store experience more fun and entertaining?”

The answer could be as simple as are vamped gas loyalty program or as out there as a lobster vending machine. One thing is certain: Innovation is key.

How Rewarding

Contrary to public opinion, Hale reported, the record-high gas prices of 2012 aren’t as bad as they seem, somewhat thanks to a mild winter during which a lot of consumers saved on other energy costs. In fact, high gas prices could result in some gains for the c-store industry.

“Prices go up and people can’t afford to fill up their tanks,” said Hale. “They make a couple of trips to the convenience store rather than once a week. So that could actually benefit your business—so long as they have money to go inside the store to buy other products.”

For other retail channels, high gas prices combined with the recession have presented more of a challenge. With fewer people dining out and more people looking for value, many retailers have turned to loyalty programs. One of the largest areas of focus for these loyalty programs? Gasoline, of course.

“On the West Coast, Ralphs just got rid of double couponing to put all their efforts toward gas-rewards programs,” said Hale, who also referenced Kroger’s success with a similar program. “Only 10% of households are the ‘coupon freaks’; everyone needs gas.”

Clearly, these programs could pose a threat to c-store owners’ gasoline business. As such, Hale encouraged retailers to keep an eye out on the competition while constantly seeking ways in which they can innovate with their own loyalty programs.

Getting Social with Food

Gas isn’t the only area in which other channels are attempting to compete with c-stores. Like the convenience channel, grocery stores saw a huge increase in prepared meals over the last year—up nearly% in dollar sales and 4% in unit sales.

“They’ve remodeled and expanded the size of their prepared and fresh offerings,” Hale said. “They’re looking at food as away to grow. This is competition for you.”

For examples of outside competitors, Hale cited both Walgreens, whose flagship Chicago location has dedicated the entire first floor to innovative food and beverage offerings [CSP—March ’12, p.42]; and Dollar General, which is rolling out Dollar General Marts that devote half their space to grocery.

There’s a good reason retailers are using foodservice to grow their market share: Even in our bleak economy, people are still willing to spend big on food. The average Food Network viewer spends a whopping 68 minutes watching the channel. Food and cooking websites boast 67 to 91 unique viewers a month. And while the rest of book sales dropped 9% in the past year, cookbook sales held steady.

“Food is the social network of the ages,” Hale said. “We have a lot of interesting food and we seek information on it. For those of you who have websites, I would urge you to spend a lot more time talking about food.”

The Digital Age Cometh

Many companies are doing just that: using consumer interest in cooking to enhance their digital presence. Shop-Rite offers a YouTube channel made up of videos that offer cooking solutions and feature their private label products; Hy-Vee has celebrity chef Curtis Stone advertising the importance of cooking to online shoppers; and Whole Foods sold more than a million Living Social coupons in less than 12 hours.

“One of the biggest shifts we’ve seen is how we communicate and reach out to shoppers,” Hale said. “We’re going to see a lot less effort around paper-based advertising and more digital-based advertising.”

While most retailers spend about 70% of their marketing budget on paper-based circulars, newspaper readership is on the decline. In fact, Hale predicts it will be surpassed by online readership within the next two years.

Hale had no shortage in examples of companies who have found success “going viral”: 30% of Nordstrom’s growth in 2011 came from online sales; Houlihan’s is showcasing customer tweets across billboards in the Chicago area; and Walmart is riding high after partnering with Facebook on the Shopycat app, which analyzes likes and dislikes of Facebook users to come up with the perfect gift from Walmart’s inventory

“Digital is really coming of age,” said Hale. “There’s an opportunity to get even better.”

Convenience Innovation

Digital isn’t the only area in which Hale cited the opportunity to get better. Although convenience has long been a stable of the c-store industry, Hale believes it’s another area where retailers must innovate.

“People are in a hurry,” Hale said. “They have a need for convenience, and you need to be very flexible in terms of where and how you engage with them.”

One success story is Applebee’s “To-Go” program, which offers customers the option of calling ahead and having their ready-to-go meal delivered to their car. Hale described it as “a simple solution that incorporates quality customer service.”

However, the real threat to the c-store industry could come from an unexpected avenue: vending machines.

“The innovation that’s happening in vending is just incredible,” Hale said.“There are now vending machines for live lobsters, fresh meat, heated pizza and ramen noodles.”

But could vending machines really replace the c-store experience? Kroger apparently is wondering: It’s testing Shop24, a robotic store that can hold up to 200 products and requires no labor other than occasionally reloading the machine.

Some of these concepts may seem quite out there for the average retailer—but so were video screens at the gas pump not long ago.

“Think about your business and how things are changing so rapidly with innovations you never thought would happen but are working,” Hale suggested.

The time has come when retailers need to either embrace an innovative future or go the way of the Blockbuster and Circuit City locations of the world—the Nielsen numbers prove it.